Fracking and Denton’s Economy: A Quick Response to the Perryman Study
The oil and gas industry is well funded and they are certainly pros when it comes to messaging, media relations, and politics. Which is why they perfectly timed the release of an economic study on the impacts of a proposed fracking ban just when the local, regional, and national media frenzy began. They know that means there won’t be enough time for anyone talking about this issue to digest and properly analyze their data, yet they’ll get every reporter leading off with their claims taken right off the front page of their 69 page report.
The report claims that Denton will lose millions if this ban goes through. Whatever you think about the wisdom of adopting a fracking ban in Denton, let’s make sure we are all aware of the facts here.
To begin with, it should be notable that the study was funded my the oil and gas industry and commissioned by the Fort Worth Chamber of Commerce. If it is true, as the report claims, that $251.4 million in gross product and 2077 person-years of employment would result from the continuation of Denton fracking over the next 10 years, we know that the vast majority of that money and the jobs will go to OUT OF TOWN companies and their workers. Hence, the concern of the Fort Worth Chamber – they are home to a bunch of major oil and gas companies as the map below shows.
Here are some economic facts that show the real economic impact of natural gas operations in Denton:
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Out of $6,979,224,274 in total property values across the city, only $81,463,434 come from minerals – that’s only 1.17%.
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From that, the city gets only $561,894 in property tax revenue. That amounts to only 1.1% of all our property tax revenue and only 0.5% of all the revenue going into our General Fund.
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Realize that Mineral Property Values are assessed regardless of any real plans to develop them. It’s likely that this revenue would continue with or without a ban on fracking.
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Only 0.27% of Denton jobs come from oil and gas operations. And these numbers have gone down 2.2% between 2012 and 2013.
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The Airport Gas Fund gets about $900,000 a year in royalties. That money comes from existing wells that are in production and would continue to produce with or without a ban on fracking in Denton.
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Likewise, the Park Gas Well Fund gets about $150,000 a year in royalties. That money comes from existing wells that are in production and would continue to produce with or without a ban on fracking in Denton.
Could a Frack-Free Denton Result in an Economic Boom?
Citizens in Denton are attempting to make our city the first city in the state of Texas to ban fracking. It’s everything I would expect to come out of our citizenry. There’s an ambition to our people that is easily overlooked, but once discovered, explains much about our local culture.
Local statesman-philosopher-theologian-technologist and cultural critic Dave Sims said this about our local music scene in a celebrated 2008 New York Times piece on our city:
There’s this combination of artistic fervor and small town naïveté. Artists here don’t know they’re not supposed to be Bob Dylan so when they start a band, they shoot for the moon.”
It’s the best sushi in the region in an nondescript location on Elm Street without barely a sign out front. It’s having the largest community garden in the nation. It’s figuring out how to get the local NPR station to always include ONLY the name Denton alongside Dallas and Fort Worth back when our population was a quarter of the size we are now. It’s the vision of a Shaun at a place like Midway Mart. It’s crazy ideas like the collaborative nonprofit vision of Serve Denton or Mentor Denton where we think getting a quarter of our adult population to mentor our 10,000 at-risk kids is possible. It’s really believing that we are just a few years away from overtaking Austin and every other city as the top spot for high tech and startups. It’s getting a commuter train to a city our size in the most car-centric part of the nation. It’s leading the nation with 40% wind power sustaining our energy needs.
It’s how Denton does it.
DENTON’S ECONOMY PROSPERING FROM NATURAL GAS DRILLING?
As the industry-friendly outsiders begin to pour tens of thousands of dollars into “educating” our citizens of the economic benefits of fracking in our community, it is important to be clear on this subject: A ban on fracking in Denton will have no perceivable impact on our local economy.
The money to be made from fracking in Denton has largely already been made, as evidence by the hundreds of existing wells, many of which were drilled nearly a decade ago, throughout the city. We are home to no major oil and gas operators. Our local government and schools are not depending on revenues from gas to fund our services. And according to recent economic demographic data for the city (see below), jobs relating to the oil and gas industry make up just 0.27% of our local workforce and has even seen a 2.02% decrease between 2012 and 2013.
Local fracking could stop tomorrow and our economy would hardly notice. The economic concern relating to the proposed ban really boils down to the cost of what is likely to be a lengthy and expensive legal battle from operators, mineral rights owners, industry groups, and perhaps even the state of Texas. And given the unchartered waters this proposed ban would take us on, our ability to succeed remains questionable. It is not unreasonable for citizens to question the wisdom of spending millions on legal challenges that we could very well lose.
AN UNLIKELY ECONOMIC ANALYSIS OF A DENTON FRACKING BAN
We’ve determined that the only real threat to our local economy of the proposed fracking ban is the relatively temporary, though likely high cost of an extended legal battle defending it. Most people will judge the wisdom of such an economic risk on the likelihood of overcoming those legal challenges. In other words, spending money on a protracted legal fight defending the proposed ordinance is justified or unjustified relative to the perceived likelihood of winning that legal fight. This isn’t an unreasonable economic assessment, but it seems lacking.
What both sides in this debate fail to account for is the potential economic boom that could be created by a frack-free Denton.
Given the rhetoric of late of shoe-less school children and global Russian domination, it might be difficult to get our minds wrapped around a different way of thinking about the economics of fracking in the 21st century city. The entire argument likely turns on the preferences of millennials.
The Atlantic City Lab recently released an article entitled, “What Millenials Want – And Why Cities Are Right to Pay Them So Much Attention,” where two studies were cited indicating that this future generation places a high priority on sustainable living in sustainable cities. A Pew Study on US Energy Policy says that 73% of those 30 and younger, and 61% of those 30 to 49, say it is more important to develop alternative energy sources. The pertinent question for us is this: How does a city like Denton retain and attract the best and brightest of this generation? As Governing Magazine puts it,
For the foreseeable future, the so-called millennials (currently ages 18-30) will drive both the housing market and the fast-growing innovation economy. It’s a huge cohort of about 70 million people. [T]hey are gravitating toward a select group of metros and small cities… So if you’re not one of the hip places today, you have only a few years — the length of one real estate cycle and the time horizon for planning an infrastructure project — to become hip enough to keep your kids and attract others.”
Like it or not, the economically powerful cities of the 21st century will be those that figure out how to be attractive to this generation.
While the oil and gas industry makes up a mere 0.27% of our local jobs, we have the potential to leverage a boom of another sort – Denton is the 6th best high-tech hot-spot in the nation. Smart cities are paying attention to the studies and are realizing that investing in sustainability, walkable/bikable development and infrastructure, cultural amenities, and vibrant urban cores is the way to retain and attract a talented workforce and the companies who need them. As an example, cities like Chicago are racing to be the most bikable cities in the nation – all with the goal to attract high tech industry.
Denton already has so much to situate us as a major player in the 21st century innovation economy. But the reputation of a town that allows fracking within 200 feet of established neighborhoods combined with some of the worst air quality in the nation, actually serves to overshadow our more attractive traits and results in an unfortunate black eye on otherwise ambitious and nation-leading sustainability chops. What are we doing to counter this?
If Denton were to lead the state as the first Texas city to ban fracking, combined with our existing commitment to sustainable innovation, and reputation as world-famous cultural center, our city would quite instantly be seen as the most progressive city in Texas, if not the entire region.
And here’s the kicker – this reputation would stick whether or not the fracking ban survives legal scrutiny and statutory changes. We will always be known as the city that sought to stand up to the energy policies of the 20th century in order to lead the nation to a more sustainable future in the 21st century. What’s the potential of that worth to us?
In a nation where smart cities are falling over themselves to attract the best and brightest of the millennial generation and reap the economic development benefits that follow, there just might be a case that a few million today to fight for a frack-free Denton will position our city for a sustainable, long-term economic boom of another kind.
POSTSCRIPT – LET’S NOT LOSE SIGHT OF THE PROBLEM
Since I was elected to the city council in 2011, I’ve tended to approach the fracking issue in a problems/solutions context. How can one particular tool or set of tools help us solve a particular set of problems? Once those problems are solved, let’s reassess the remaining problems and and figure out how to apply or acquire the necessary tools to those – and so on.
As I conclude this article, I have to be clear that it is in that spirit that I have approached the proposed fracking ban in Denton. There are significant problems left to be solved among our fracking landscape. Most notably the problem of older, existing wells, approved under earlier regulations and seemingly grandfathered by old plats. I wrote about this problem extensively. I referenced it immediately after we passed our January 2013 gas drilling ordinance overhaul. And then I spelled the problem out in greater detail in November 2013 at the outset of representing the council on lengthy and extensive negotiations with EagleRidge Energy (again, in an effort to solve a lingering problem that ordinances seemed unable to solve).
In that light, I continue to worry that whatever the outcome of a proposed ban on fracking (whether by council vote or city-wide election), we will find ourselves back in the situation we are in today 8 months or so down the road: an ordinance that is only effective to regulate completely new drilling operations and a whole bunch of existing wells in our fastest growing part of the city that can be reactivated at any time, with a potentially unlimited number of wells for perpetuity, regardless of their proximity to homes, schools, parks, and hospitals. Once we get beyond the media attention, the likely expensive and extensive legal battle with operators, mineral rights owners, and the state of Texas, where will we be? Is the proposed fracking ban the correct tool and, perhaps more importantly, can that tool be sustained?
Beyond this economic discussion (which I float here for further discussion), we need to continue to focus on how to solve these problems should a ban either fail a city-wide vote, or pass and get overturned through legal challenges.
Please comment here, send me an email at kevin.roden@cityofdenton.com, or call me at 940-206-5239 with any comments, questions, concerns.
Railroad Commission Chair Chimes in on Denton Frack Ban. And I Respond.
A growing number of voices are weighing in on the fracking ban petition ordinance the city council will vote on during next Tuesday’s council meeting. Tonight the City Council received a letter from Barry Smitherman, the Chair of the Texas Railroad Commission, urging the council to reject the proposed fracking ban, calling the attempt to do so “extremely misguided.” A copy of his letter is provided below.
I’m not intending to use this post to speak one way or another about the wisdom of a Denton fracking ban, but I do have a candid response to Chairman Smitherman:
Where have you been? The Denton community has been struggling with very serious issues directly resulting from policies and regulations your Commission is charged with enforcing. Where were you when we struggled, unsuccessfully, to find a way to prevent a drilling operator from fracking 200 feet from the back porch of several houses in an established neighborhood? When our community has experienced blowouts, spills, and significant air quality concerns stemming from the very industry you are supposed to be regulating, where have you been?
You’ve been silent, absent, seemingly unconcerned, and clearly regulatorily ineffective.
Yet a group of concerned citizens, faced with unacceptably close drilling operations right in their backyards and frustrated with an obvious lack of regulation, take matters into their own hands and only then do you enter into the discussion – and only to advocate a squashing of their efforts. You offer no policy suggestions, no empathy, and no sign that you understand the situation we find ourselves in here in Denton.
On Tuesday night, I fully expect to face a crowd of frustrated and exasperated citizens, some of whom may have harsh words to say about my leadership (or lack thereof) on this issue. I will gladly listen to a thousand citizens yelling at me in attempts to make their city better and healthier over the letters of out-of-touch Austin bureaucrats.
When you are ready to help and suggest solutions to these issues, I’m all ears. But I have no interest in an advocacy letter defending the very industry and weak regulations that have created these problems in the first place.
On Process and Economics: How to think about the proposed Convention Center
The city council is in the final stages of approving a plan that will result in the development of a city-owned convention center conjoined with a privately-owned full-service hotel on the UNT land previously occupied by a large Radisson Hotel. This plan represents a partnership between the city (who will own the convention center), O’Reilly Hospitality Management (who will construct and own an Embassy Suites hotel), and UNT (who is leasing the land). As the plan reaches these final stages, there is increased interest in the project from many sectors of the city. The Denton Neighborhood Alliance is organizing a meeting to discuss this project (with city staff on hand to present and answer questions) on Wednesday, July 9 at 7pm in the historic Courthouse on the Square in the Commissioner’s Courtroom.
Today, the city released a video and FAQ addressing many of these issues today – see it here.
QUESTIONING THE WISDOM OF A CITY-OWNED CONVENTION CENTER
There are several recent articles questioning the wisdom of the city convention center craze across the country - here’s one that is helpful in laying out the basic criticism that is common to many of them. I’ve read just about all of them and passed many around to city staff members and council colleagues early in the process. Here are the main points that are important to our discussion:
- Convention Center space has increased over the last 20 years while the amount of actual conventions has declined – a glut of space combined with fewer conventions.
- As a result, some Convention Centers have not been successful. There are examples of many that have an actual negative economic development effect on the city precisely because the city has to support a failed convention center that it now owns.
- Cities sold these city-owned Convention Centers as a driver of tourism and outside money flowing in to support the local economy. Because of the previous two points, these promises have too-often gone unrealized.
Beyond this argument, several others have been offered by concerned citizens, including:
- Issues with the location – not near major retail, restaurants, downtown, or tourist attractions. How can we see economic development with this site?
- This will likely fail and the city will be left holding the purse and have to pay off the $25 million investment through other means.
- Distrust with partnering with UNT for one reason or another.
- No one wants to come to Denton for a convention.
- An abundance of regional competition for convention center space in better locations.
HOW TO THINK ABOUT THIS CONVENTION CENTER PROJECT
At the end of the day, this project is about economic development, so it is helpful to break down the discussion into two main questions – many, if not all, of the above issues can fit into one of these questions:
1) Is the project financially feasible and responsible?
2) Will the project spur significant economic development to justify the $25 million investment?
I’ll get to these two questions shortly, but I’d like to first offer a brief interlude on the question of process…
A DEFENSE OF THE PROCESS
In recent days, some of the opponents of this project have alleged that the city council has left the Denton citizens out of this process, some even going so far as to claim that the city has been hiding this project and its details up until now. While I certainly appreciate that some are just now paying attention to this issue for the first time, it is simply not true that this issue has been discussed outside the public eye and without the public’s ability to engage this issue.
There have been at least 22 public meetings where this project has been presented openly and accessible to the public since the proposal first came to the city in September 2011. The Master Developer Agreement has been publicly available since November 2013. I write weekly City Council Preview posts on this website FOR THIS VERY REASON: to open up City Hall to the citizens, translate the often legal-sounding language of council agendas, and give another avenue of citizen engagement for whoever is interested. To date, I’ve posted about this topic at least 12 times since Spring of 2012, often with links to PowerPoints and other media your average person wouldn’t have easy access to outside of attending meetings. I haven’t yet scanned through the 250 results coming up when you search for “Convention Center” online at our local newspaper, but I assure you this has graced their front page and editorial page on several occasions over the last two years. This has also been a major issue addressed in several candidate forums during the last three election cycles (2012, 2013, and 2014).
While it is true that there has been only one official “public hearing” on the issue, it is important to understand that “public hearing” has a specific legal designation and is required for certain things and not for others. Many important and/or controversial topics have only one official “public hearing” before the council prior to council action: the gas well ordinance, the smoking ordinance, zoning decisions, etc. But that doesn’t mean there aren’t other opportunities to engage the council during regular meetings (speaking to items of Individual Consideration, Citizen Comments section, etc.) and outside of meetings altogether. On this issue, many have up until this point. I’ve received several emails (even before this latest round), many phone calls, have visited with several citizens and concerned hoteliers, and am stopped often around town to discuss this and other issues. While the official “public hearing” process is hugely important, most people I know prefer to give me their opinions on a subject in other ways: email, phone, letter, social media, or even stopping me at the grocery store. In fact, on most issues, I tend to get more feedback outside the council meetings than I do at the actual council meeting. And there’s a benefit to that – we can actually have an extended conversation as opposed to the rules which prevent back and forth discussion during formal public hearings. It’s one of the beauties of local government: accessibility to the decision-makers.
While I understand that the narrative, “City Council is not listening to you and they are about to spend your money without getting your feedback!” is helpful in getting people’s attention, it is neither true nor helpful in focusing on the important issues at hand.
QUESTION #1: IS THE PROPOSED PROJECT FINANCIALLY FEASIBLE AND RESPONSIBLE?
Let’s return to the two questions I posed at the outset of this article. Regarding the first one, I will point out that the council has made it clear from the beginning of these discussions that the city would not approve an agreement that didn’t include safeguards to protect us against low performance. The city will fund the construction of the $25 million project and the debt will be repaid through: 100% of the Hotel Occupancy Tax from this project, up to $100,000 of existing HOT funds, 100% of the city property and sales taxes from the new hotel, possible involvement from the county and school board property taxes from this location, and annual lease payments from O’Reilly to cover whatever shortfall is left between the revenue just describes and the debt payment owed by the city. It is expected that the project will pay for itself. If it doesn’t the private developer involved will make up the difference. This is crucial – most, if not all, of the city convention centers described in the articles referenced above did not have this sort of protection. We’ve learned from that and sought to build in that safeguard to protect the city and the citizens.
It remains to be seen, however, what will this project bring to the city beyond simply paying for itself.
QUESTION #2: WILL THE PROJECT SPUR SIGNIFICANT ECONOMIC DEVELOPMENT? ENOUGH TO JUSTIFY THE $25 MILLION INVESTMENT?
This entire project has been couched in economic development terms. The purpose of the project and how it is done is stated in this city document released today: “The purpose of a convention center is to attract out-of-town business and generate economic activity throughout a city. The economic benefit is received from money spent by convention delegates before, after, and in between meetings.” The document then estimates a $13 million annual economic impact to the city as a result of the convention center.
Let’s break this down.
The $13 million assumes a $140 per day average spending rate among an estimated 46,500 collective nights of overnight-spending convention-goers. It also assumes a dollar for dollar multiplier effect in our local economy. For discussion sake, let’s assume all this. We also know that the $140 figure includes hotel costs – estimated to be about half of the total dollars spent per day. Assuming the bulk of these conventioneers are staying at the on-site hotel, it is important to point out that there are no additional economic benefit to their hotel costs. Anything the city would have received from their stay at this hotel will go directly toward paying the debt of the convention center. In order to account for this, therefore, let’s cut the original $13 million figure in half and assume a $6.5 million annual economic impact on the city (which is really a direct $3.25 million impact times two for the multiplier effect). This figure would account for non-hotel spending in the city – the “money spent by convention delegates before, after, and in between meetings.”
While that figure sounds decent, realize that any city-specific project with economic development goals needs to also look at this in terms of annual sales tax revenue for the city. At a local sales tax rate of 1.5%, the city will only see $97,500 a year in new sales tax revenue off this $6.5 million. Breaking this down even further, this means that each conference attendee will contribute only about $1.05 a day to the city’s tax base. To put that figure into context, annual revenue from sales tax city-wide is approximately $26 million – this project only amounts to about 0.375% of the annual revenue stream from sales taxes. You can also compare that with other things. Golden Triangle Mall itself seems to be contributing at least $1 million a year in sales taxes. There’s a movement afoot to allow retail liquor sales in Denton (it will be on the November ballot) – that is estimated to generate $700,000 in sales taxes a year.
$97,500 a year for a project that takes $25 million of city money to build. $700,000 a year for something that costs the city nothing.
If convention dollars spent in Denton is the main economic development argument for this Convention Center, based on this analysis, things aren’t looking good. With $25 million for a project coming from Certificate of Obligation bonds, there’s a debt capacity issue here which requires us to do an Opportunity Cost analysis. What else could the city do with $25 million to spur on economic activity beyond an additional $95,000 in sales taxes each year?
THE ARGUMENT AHEAD
It is time for those who have advocated for such a project for years to come out and make a case. If it is all about boosting tourism dollars, it’s unclear that $95,000 in annual new sales tax revenue is worth the $25 million investment. There are, however, additional arguments that might be made here:
- What’s the economic value of having a convention center for existing businesses in Denton? How can it help large companies in their mission and aid small businesses in their desire to scale? For that matter, what is the economic value of having a full-service hotel in town?
- What does the presence of a convention center add to our city’s economic development portfolio or toolkit? How does this help encourage greater economic vitality from within and renewed interest from without?
- How might the presence of this project spur significant redevelopment of the area directly across the highway? The entire area North to Eagle Drive, East to Carroll and West to Bonnie Brae is arguably ripe for major reinvestment and redevelopment. Are there related plans for this and how can this be added to the equation?
- What’s the economic impact of a major research institution to the city? Beyond its role as a major employer, how can it be leveraged to make Denton a hotbed of entrepreneurial activity and research-based business incubators? What, if any, impact does a Convention Center have on this?
- How can the presence of a Convention Center help Denton become a leader in certain sectors and industries by allowing the city to be host to targeted events and conferences?
- Is there a cumulative economic development case (using these and possibly other factors) that can be added to the tourism/convention dollars argument?
I continue to think that there are good reasons – beyond the convention-spending argument – to think this project can be good for the economic well-being of the city. But those need to be made and communicated to the citizenry. The old boosterism aims of these projects, as the growing literature is showing, can not be the entirety of the case for a Denton convention center.
I look forward to the continued discussion. Stay tuned to this website for more on this. Also follow me on Facebook and Twitter for updates.
Here’s the video just released by the city today…
Goodbye TAMS and UNT. Hello Startup.
After 15 great years of working with some of the brightest teenagers in the nation, I’ll be leaving my post with the Texas Academy of Mathematics and Science at UNT on August 1. These students are a tremendous asset for the university and the community. Each year, they collectively serve over 10,000 hours of community service and a big chunk of that is spent directly helping kids in Denton schools. Having this sort of concentration of innovative, creative young minds who consistently bring national and international attention to the university and city is every community’s dream. I expect to continue partnering with TAMS as we build our local tech/innovation/startup economy and as we continue to grow our community educational initiatives.
The educational tech startup my wife founded, Pascal Learning, is bringing me on to further their mission of helping schools and cities unlock the potential of their most at-risk kids by unlocking the potential of their parents, mentors, and caregivers. With 45% of our nation’s kids at-risk of failing, dropping out, or falling behind, we seek to help communities equip and inspire their very first teachers – parents.
ReadyRosie is Pascal Learning’s first creation and is helping parents of 0-5 year olds get their kids ready for school in dozens of communities in 10 different states – and growing every day. This Fall we’ll launch our latest venture, Bringing Up, an innovative parent engagement tool which schools will use to inspire the parents and mentors of their Kindergarten through 3rd grade kids.
I look forward to continuing my vocation as an educator by helping parents, mentors, and communities across the country reach their most at-risk families. And at the same time, I love that I’ll be a part of Denton’s emerging tech startup scene.
You can find out more about Pascal Learning and ReadyRosie from these stories in the Dallas Morning News and KERA.